Business Environment Exam Revision

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BusinessEnvironment Exam Revision

BusinessEnvironment Exam Revision

Astakeholder can beadequately definedas the groups which facilitate the existence of an enterprise or aproject by their support. They include the investors, suppliers,customers, employees, owners, the government, trade unions andassociations, creditors as well as the community at large.

Sourcesof Power

Legitimatepower is the positional power and formal authority based on theposition held in the chain of command of the organization. This mayinvolve the allocation of duties and responsibilities by the managersas well as the reporting of workers to the managers.

Expertpower is attained by the attributes of the people who are moreskilled and knowledgeable especially during critical situations. Theexpertise and reliability of the person therefore making such peoplehighly valued. Forexamplea person who is highly skilled in design, his opinions, ideasand creativity will most likely be highly regarded.

Referentpower develops as a result of the interpersonalengagement and personal traits that pull others to admire, respectand trust. This power arises from the goodrelationship cultivated within the organization to a situation wherethe other employees develop positive feelings and attitude towardssuch a person.

Coercivepower employs the use of negative consequences inorder toconstrain or push others to do or perform certain tasks. This type ofpowermay involve the use of threats, sanctions, punishments, withdrawal ofrewards or withholding of resources. Inaddition,there is the provision to punish, reproach or to sack employees. Anexample is working overtime inorder tobeat a deadline to prevent reproach or disciplinary action.

Rewardpower isderivedbythe ability to provide rewards and incentives that will work towardsthe motivation of employees. The rewards can beprovidedthrough material gifts or benefits. This form of power may facilitatethe increasing of salaries, promotions to higher positions as well asprovision of time off for vacations or rest.

Typesof organizational justice

Thefirst type of organizational justice is procedural justice which isbased on the observation of fairness in terms of procedures which areconsistent, accurate, ethical and unbiased. In this scenario,individuals have an opinion in the undertaking as well as democracyand legal considerations are observed.

Distributivejustice on the other hand is founded on the fairness that isattributed to the end result of decisions as well as the fairresource allocation or distribution. The fairness is usually felt bywhat the employees receive for example pay increments and this typeof justice can be reached through education, communication andensuring proper employment procedures.

Interactionaljustice has been further subdivided into two to include interpersonaljustice and informative justice.Interpersonal justice isfocusedon how the person isregardedor handled whether it is with dignity, respectand politeness by the organization or authority. Informative justicehoweveris derived from the sufficiency of the reasons given with respect totime, specificityand honesty. In other words, it tries to elaborate the core reasonsas to why certain procedures and decisions wereimplementedas well as why outcomes were handed out in acertainmanner.


NewEntrant Threat: this illustrates the ability of other people to beable to enter your market leading to reduced profits. Barriers ofentry can beputin place bythe application of certain characteristics that inhibit additionalrivals from getting into the market for example by artificiallykeeping prices low to discourage potential entrants.

Powerof the Supplier: this ismainly basedon the supplier’s bargaining power which can beillustratedin the scenario where the number of suppliers is low. This wouldtranslate to suppliers increasing prices and having control over thebusiness due to the limited supplier alternatives.

Customerpower: the buyers have the ability to cause pressure to the firms ororganizations prices especially when there are other alternatives forexample if afirmis dealing with a lownumber of powerfulcustomers, these customers have the power to dictate the prices to acertain extent.

Competitiverivalry: the level of competitive rivalry iskey to the determination of competitiveness. An illustration can begivenwhereby a company, organization or firm can lose customers if thereare other competitors offeringthe same quality and price of products and services.

Substitutionthreat: the presence of products and services outside the commonprovides a leeway for alternatives. This may also involve another wayof doing thing.Forexamplea company selling accounting software may be weakened if peopledecide to perform the process manually.

Factorsaffecting the intensity of Porter’s 5 Forces

Supplierpower is affected by the number of suppliers,cost of switching to other suppliers.Availability of substitute for example, if there is only one supplierfor acertaininputthen the supplier is likely to be powerful.

Threatof substitutes is affected by the pressure to substitute, cost ofswitching for example if another product performing a similarfunction isbroughtinto the market atbetter quality and/or cost

Customerpower is affected by numberof buyers, price, quality, substitutes and incentives. Forexampleif a buyer has a variety of choices to make then the customer ispowerful enough to select the preferred supplier

Newentrants are affected by access to input, policies, access todistribution and economies of scale. If there is a very high demandfollowed by high profits, potential firms are likely to enter themarket.

Competitiverivalry is affected by prices, growth, brand, diversity of rivals. Awell-established firm with a widerange of products known for goodquality is more likely to be stronger.

Typesof government policies

  • Macroeconomic stabilization focuses on sustaining the money supply at a rate that will not lead to excessive inflation.

  • Trade policy is based on the agreements with regard to trade and tariffs which are overseen by institutions which govern them.

  • There are also policies which lead to economic growth and development and structural change.

  • In addition, policies concerned with the distribution and redistribution of resources including income, wealth and property.

  • Regulatory policy focusses on the policies that govern terms and conditions in addition to anti-trust policies, industrial policy as well as economic development policies.


Monetarypolicy can be utilized during a recession especially by the reductionof borrowing costs as well as reducing the incentives to save. Itallows investors to be able to sell stocks and bonds at a faster ratethan the purchase and sale of physical goods.

Fiscalpolicyon the other handisbasedon lowering of taxes and the initiation of increased governmentspending with the aim of economic growth improvement. Its effectsinclude increased demand for goods and services as well as the needto hire more employees and ultimately increased production.

Advantagesof international trade

  • It facilitates the interchanging of technological know-how

  • Allows for the growth and expansion of a company to potential customers

  • The expansion or branching out of risks can be of importance to prevent total losses especially in cases of economic meltdowns

Disadvantagesof international trade

  • Importation of harmful substances including illegal substances or toxic wastes can be attributed to international trade

  • Big international companies may suffocate the local developing companies

Impactsof exchange rates

Depreciationcheapens the cost of exporting thus benefits will rise whileappreciation rendersexportingexpensive thus reducing the competition among exporters.

Impactsof protectionism

Itmay lead to the development and growth of domestic companieshowever,itmay also leadto the production oflow quality, sub-standard products that are costly.

Impactsof InternationalPESTLE factors

Thedifferent changes in social factors that affect consumer needsespecially interms ofhealth and diet hasincreased the demand for healthy foods. Food shortagesas well as demographic changescan also favor the increase or decrease in demand ofproducts and services.